Tag Archives: Suppliers

Don’t Miss Out on These Three Ridiculously Simple Negotiating Tricks You Can Use Today

Card Trick

We negotiate agreements all the time, but many people like you still don’t feel comfortable making deals. While there are lots great books with detailed advice, I wouldn’t want you to miss out on these three tricks that behavioral scientists suggests could tip the scale in your favor. Best of all, this paragraph contains all three tricks! Take 1 to 2 minutes and find out exactly what they are.

1. “Many people like you…”

Humans are social animals, and we’re constantly looking to others for clues on how to act. Knowing what the majority of people do creates powerful motivation for people to act similarly. For example, if a waitress at a restaurant told you, “We have two specials today, but many people like you are loving the filet mignon,” you would likely give the fillet mignon much more consideration than the other options.

In a business setting, this phrase can have significant impact with suppliers. For example, when negotiating payment terms, you can use a phrase such as, “Most of our suppliers like you offer us credit terms of Net 60.” This wording can give your supplier a strong inclination to offer you the same.

One caution many people like you should consider is not overusing the phrase (see how it gets old rather quickly?). Also, be sure that you’re honest about what you’re recommending. If most people don’t really do what you’re suggesting, then consider another approach.

2. “Take 1 to 2 minutes…”

A recent Columbia Business School study suggest that you should always quote a range with your real value on bottom. Doing so will increase your chances of getting the quoted price you want.

For example, let’s say you ask me how much I’ll charge for a small consulting project. If I was hoping to get $100, then quoting you a range of $100 to $120 not only increases the chances that you’ll be happy to agree at $100, but it also opens up the possibility that we settle at $110. The chart below details the bolstering strategy.

Ames and Mason range offers graphic

If you’re on the buying end, flip the strategy around. If you want to buy something for $20, offer 15-20 bucks, and the seller will likely be more willing to settle at $20.

The best part about this technique is that it can be used right away with very little risk. The next time you quote a price, include a range with a higher number and you’re more likely to get what you quote.

Read more about the details of the study from Columbia’s article: When It Comes to an Opening Number, Sometimes the Best Bargaining Move Is to Offer Two. The above chart is from the article as well.

3. “I wouldn’t want you to miss out…”

Another quirk about human behavior is loss aversion. We are disproportionately worried about losing  opportunities. Mentioning this aversion can trigger people to change their approach and be more willing to agree to a deal.

For example, negotiating better payment terms with a supplier might sound like this, “we have a lot of great growth opportunities next year, and I wouldn’t want you to miss out on extra orders from us because of tight credit terms.” Considering the possibility of missing out on future opportunities may be the key to getting the concession you need.

This technique, and the “many people like you” phrase, are both explained further in an excellent Freakonomics podcast, The Maddest Men of All.

Good luck in your future negotiations, and let me know if these tricks worked for you.

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21 Vendor Metrics Your Supplier Scorecard Might be Missing


Giving your vendors feedback through a supplier scorecard is one of the best ways to improve their performance. When you take factors beyond price into consideration, your total cost of ownership decreases, your customers are happier, and you improve relationships along your entire supply chain.

But is your scorecard missing key metrics?

The goal of a supplier scorecard is to measure things that are important to you and your customer. By measuring and keeping score, you can encourage your suppliers to improve.

If you don’t have a supplier scorecard system yet, then check out my guide on Building an Awesome Vendor Scorecard Program in 4 Easy Steps. It includes a free Excel template that you can modify to match exactly what metrics you want to measure.

While some of these metrics might not apply to your business model, there’s definitely a few to add if they measure something important to you and your customers.

  1. Communication

Whether it’s email response time, conversation clarity, or even language skills, bad communication can be a huge drain on a relationship. Ask everyone who interacts with the supplier to rank communication on a ten-point scale and average the scores. Give specific feedback to your supplier on which aspect of communication would most improve the score: Do their emails need to provide more details? Should they look into hiring some translation help? Could they email less often?

  1. Lead Times

Keep a running average of the lead times from order to receipt for each supplier. Compare against other suppliers or a standard you’re working to reach. Be sure not to penalize or reward suppliers based on your choice of shipping method. Overall lead times will of course go down if you start using express shipping. However, if the supplier chooses the shipping method, then including it might be a good idea.

  1. Payment Terms

How long your supplier gives you interest-free loans can be very important, especially when cash is tight. Letting suppliers know what the ideal would be, or the most generous terms you have from another supplier could encourage them to upgrade your credit.

  1. Missed Shipments

Dropping the ball on an order or stocking out can have big consequences to you and your customers. Measuring rare but high-impact failures helps both you and your vendor work on ways to avoid future problems.

  1. Financial Health

Walmart periodically checks in on the Dun & Bradstreet credit scores of its suppliers. A supplier in poor financial health could disrupt your supply chain by entering bankruptcy. Measuring this can sometimes be tricky – but it may justify the extra effort.

  1. Number of Other Customers

Similar to financial health, a diversified customer based is a sign of supplier strength. Walmart hopes its suppliers have other customers besides Walmart. In fact, many big-box retailers are uncomfortable being more than 30% of a supplier’s revenue base. On the flip side, you may not want some suppliers serving other customers.

  1. Ease of Doing Business

Similar to communication, some suppliers are just easier to deal with. Being difficult can take up your team’s precious time, and those suppliers could benefit from knowing that they are a hassle. Of course, you’ll want to be courteous and professional with your feedback, but being open and honest with this metric can go a long way to solving problems between you.

  1. Audit Standards

Many large companies such as Disney and Target have audits that every party in the supply chain must pass. Even if you don’t work with these companies, holding your suppliers to these standards can be a good idea. It usually involves bans on child or forced labor, a maximum of 60-hour workweeks, and basic safety standards. Putting this metric on your scorecard can show your vendors how important those standards are to you.

  1. Cost Reduction Suggestions

The best vendors I’ve worked with have come to me with ideas on how to reduce costs. For example, if we tweaked a part slightly, then the supplier could offer me a lower price. I want to encourage this behavior, so my suppliers get a scorecard bonus when they make a plausible suggestion.
Suggestion Box

  1. Product Suggestions

I constantly worked with my suppliers to come up with great new products my customers wanted. Most of them pushed products at me, but only a handful of vendors presented good ideas. The difference was that those vendors spent time researching end users and gathered insights they could pass along to me. In your scorecard, you can rate the quality of product ideas (can you take what they offer and sell it to your customer right away), or the quantity ideas if they’re shy about presenting options to you.

  1. Relative Price

Price likely factors heavily into your decision, but do your vendors know where they stand compared to others. While you may not want to tell any of your vendors, “you’re our cheapest option,” because they might raise prices, you may want everyone else knowing they’re more expensive. A qualitative gauge similar to, “you are more expensive than average on most products,” can help more expensive suppliers know where they stand and encourage them to quote lower prices in the future.

  1. Specific Quality Metrics

Most vendor scorecards have “Quality” as a category, but do you have specific subcategories? What exactly are you looking for? Here are some possible options:

  • Color
  • Size
  • Error-free
  • Performance
  • Runtime
  • Neatness

Identifying exactly what your customer is considering as she evaluates the product’s quality will help you decide exactly what specific quality metrics to include.

  1. Capacity

When demand is high, does your supplier have the capacity to fill your orders? Letting vendors know where they stand in their ability to fulfill your peak ordering could encourage them to make more investment and increase capacity.

  1. Minimum Order Quantities (MOQs)

On the other side, do vendors make you order more than you really need. If so, let them know. Most of my vendors wouldn’t budge on letting me order less than 2,000 units until I made the ‘A’ score under 500.

  1. Signed and Following Manufacturing Agreement

This is usually a yes-no metric, but it rewards them for abiding by the terms of our agreement. Without including this on the scorecard, some vendors forget you ever signed anything – especially after staff turnover.

  1. Transportation Time and Cost

A freight forwarder really impressed me when they set up a meeting to review a scorecard they built for me – which graded them. It showed the average time it took them to deliver containers and other data points 0—0-[telling me how they were doing. Most interesting was that it showed they weren’t perfect – but that they were trying. Consider tracking similar metrics with logistics providers.

  1. In-stock Percentage

This one may be more unusual, but it’s the key metric of retailers. Essentially, the supplier is responsible for how often its products are in stock for its customer. For me as a supplier to Walmart, it measured how often my products were on shelves. If I saw it was below their target, then it was my responsibility to talk with them and come up with a solution. If your supplier has a similar responsibility to keep you in stock, or they provide products on consignment, then consider letting them know how they’re doing and ask them to step in when it’s below standard.

  1. Your Sell-through, Sales, and Margin on Their Product

Similar to above, if your suppliers have a stake in your sales, then let them know how sales are doing. Be sure not to share anything confidential that may help them go straight to your customer if that’s a possibility.

  1. Inventory Levels

Letting your suppliers know how much of their product you have sitting in your warehouse can help them know when to suggest further orders or delay orders to keep you inventory at target levels.

  1. Reliability of Service or Uptime

If you deal with service providers, especially web-based, then uptime can be a key component to measure and discuss.

  1. After Sales Support and Warranties

When your suppliers ship your order, is that the end of their responsibility? If not, how well do they handle after-sales support? Are they easy to work with and accept returns no questions asked? Or, are they so difficult that you don’t even bring the issues up?

What other metrics do you measure your vendors on? Leave a comment below, and please be sure to check my full guide on how to Build an Awesome Vendor Scorecard Program in 4 Easy Steps. Finally, here’s a quote that always gets me excited about doing more with metrics:

“When performance is measured, performance improves. When performance is measured and reported, the rate of improvement accelerates.”

-Thomas S. Monson

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5 Questions on How Startups Should Begin Improving Their Supply Chains

Improving Your Supply Chain
Hundreds of businesses are facing the exact same problems as you right now. Many are figuring out how to take their supply chain to the next level. What are some ways other companies have tackled what you’re up against?

In this latest podcast, I address five questions that have come up repeatedly in my conversations with small businesses:

  1. What are some ways to reduce costs and improve performance without sacrificing quality?
  2. How can a small business use technology to improve its efficiency?
  3. How can small business owners get employees and others to buy into managing their supply chain better?
  4. How can a small business oversee and boost the performance of their supply chain partners?
  5. What are some of my best suggestions for making the management of a supply chain more efficient?

Download or listen to the podcast from the link above, or check out the full podcast transcript. Also, be sure to subscribe to the podcast through iTunes or your other podcast app.

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‘The Johnny Tightlips’ and Two Other Popular Approaches to Supplier Relations

“Before you send that email, there are a few lines I want to take out. We don’t want to share that information with that supplier.”

“Really? But this supplier has done so much for us – shouldn’t they know what’s going on?”

“Not yet. Maybe later – but we don’t want to put any tension on our relationship right now.”

Three Approaches to Supplier Relations

Most companies have a list of key suppliers that you just couldn’t live without. Your dependence on them reminds you of the support you get from best friends, siblings, or even your spouse. But sharing personal information with family and close friends is often easier than sharing business information with your suppliers. What if they take advantage of you? What if they share that information with your competitors? What if they become your competitor?

Navigating your supplier relationships depends a great deal on your business model and the character of the suppliers you work with. Perhaps you could benefit from increased information sharing. Or – perhaps you should hold back a bit more. Here are three approaches to supplier relationships to consider.

The Johnny Tightlips

Johnny Tightlips

Johnny Tightlips is one of my favorite characters from the Simpsons. His catchphrase, “I ain’t sayin’ nothin’,” characterizes the attitude that a surprisingly large number of businesses take. While this arms-length relationship seems cold, it also has served many companies quite well.

The stories of suppliers moving upstream and becoming a direct competitor with their customers are numerous and instructive. For example, Asus was Dell’s supplier when they announced their own brand of personal computers that would compete directly with Dell.

If you’re a fan of poker-like negotiations, then keeping your cards close is highly advisable. Millions of dollars have been won by letting the other party speak while you sit quietly and listen. In fact, using a “pained pause” may be a great tactic to try next time you’re in negotiations. This tactic is described as, “When your negotiating partner makes a too-low offer, sigh, look him or her in the eye and say nothing.” Your silence puts pressure on them to do better, negotiate with themselves, and make a better offer without a word from you. For more on the Pained Pause, check out this Lifehacker Article.

However, relationships with Johnny Tightlips suppliers are only good as good as the benefits they bring. Unless you have most of the power in a supply chain, it’s unlikely that your suppliers will sacrifice much for you. When hard times come, they’ll more likely to switch to your competitors since there’s no loyalty or relationship in place.

Here’s a couple of my favorite Johnny Tightlips appearances:

The Open Book

The Open BookOn the opposite end of the spectrum is the open book approach. Your suppliers provide valuable services to your company – much like your employees. Treating them the same as employees, especially in regard to information, makes a lot of sense.

Being open has a myriad of benefits. Suppliers are able to collaborate with you on new ideas. Because they’re higher up the chain, they bring valuable insights about what efforts they’ve seen previously work or not. They also may have innovative ideas that they’re more likely to share with you because of your relationship with them.

An open policy also can be lifesaving when the road gets bumpy. Suppliers are much more patient when they know what is going on – why payment is delayed or orders are down. Though the rough spots are often the most difficult times for honest communication, that’s when it’s most impactful. A detailed email explaining the situation openly can open the door for more lenient payment terms and with the relationship intact.

Before your open your books completely, here are some important questions to ask:

  • Has your supplier proved their trustworthiness yet?
  • Is there any specific information that poses an unusually high risk if shared?
  • Have sufficient contracts been signed to prevent unauthorized sharing outside the business?
  • If you are a public company, are SEC guidelines – especially insider trading rules – being followed?
  • Have we sufficiently explained the policy to those who interact with our supplier?
  • Are your instincts prompting you to hold something back? Why?

Despite the risks, opening up communication often yields impactful results.

The Game of Kingdoms

The Game of KingdomsA middle ground is a philosophy I call the game of kingdoms approach. Imagine your company as a kingdom – complete with a castle and city walls. Your suppliers and customers are also kingdoms. Some are bigger than you, and some smaller. Just as a king engages with other kingdoms, you work with other companies.

The much larger kingdoms – the ones you’d like to have on your side if a war starts – merit investment in open communication. You want to build those ties in diplomatic ways by sending emissaries and fortifying trade routes. The smaller kingdoms may require less work. Taking a diplomatic game approach and envisioning various castles often helps me make better decisions on supplier relations.

Besides, “inter-kingdom diplomacy” just sounds more fun than “supplier relationship management.”

What’s Your Weapon of Choice?

Which approach do you currently use with your suppliers? How might you benefit from adjusting your communication style?

Share your thoughts in a comment, and be sure to check out our recent podcast where we talk with the former VP of Operations at Skullcandy about vendor relationships and metrics.

[Image Sources: Johnny Tightlips (modified) | Open Book | Castle]

Build an Awesome Vendor Scorecard Program in 4 Easy Steps

Vendor scorecards measure and track supplier performance on various dimensions that are important to your organization. At first, I was reluctant to start a scorecard program because I thought our company was too small and too busy. However, after eventually beginning our program, I saw powerful results that freed up time and helped the company grow.

Vendor Scorecard Example

Vendor Scorecard Template with ExamplesVendor scorecards strengthen supply chain relationships and help focus your suppliers on what matters most to you. Scorecards set goals for your vendors to reach for so they can become your vendor of choice. You can clearly see where each vendor ranks against each other, which helps you decide which supplier to work with on complex projects. This article outlines the four steps I took in building our company’s vendor scorecard program. I have attached a Excel Vendor Scorecard Template that I put together as a starting place for your own scorecard.

1. Decide What Matters

The first step in creating a vendor scorecard program is to define what your ideal vendor would look like. For me, it would be someone that communicated clearly 100% of the time, shipped quality products for free, and had a lead time of 15 minutes. Although those requests are a bit ridiculous in my industry, it does highlight what matters to me in my vendors: communication, quality, pricing, and lead-time. Together with my team, we took my brainstorm farther and came up with four categories that matter most to us with our vendors:

  • Pricing/costs, including payment terms
  • Production and Supply chain, including communication and lead-time
  • Quality
  • Product Development

Essentially, if our vendors could continually improve on these four points each year, our organization would benefit immensely.

2. Measure the Metrics

Having defined the broad categories, we now have to build the nitty-gritty of the scorecard. You need to build specific, measurable metrics for each category. Specifically, what exactly will you measure, and more importantly, how? For example, a pricing metric could be a comparison of costs between all capable vendors. A quality metric might be the percentage of orders with quality defects.

Good scorecard metrics should clearly define what is good, acceptable, and bad performance in each dimension. Your metrics should be a score for how your vendors are doing in aspects that matter most to you. They should be easy to understand, and if possible, easy to calculate. Unfortunately, building the perfect metrics often takes some deep thought to get them right.

Nailing the Details is Key

Many metrics were much more complicated to fully define than I thought they would be. For example, lead time is an excellent metric that I use. Tracking the time from when you place an order to when it gets delivered is a great way to compare vendors and encourage reductions in lead time. However, measuring this can be tricky when you get into the details. Should you track the time until delivery at to your location or delivery at port? If you ask a vendor to delay a shipment, will their lead-time artificially inflate?

For most quantitative metrics, your accounting system should have the records you need. However, based on the specific things you want to measure  you also might need to start tracking new events or information. For both of the above lead-time questions, I had to change our receipt processes to account for how we wanted to measure that metric. Despite the added work, tracking more data allowed us to trust our metrics and better compare our vendors apples to apples.

A Note on Subjective Scores

When hard data is unavailable or impossible, use a subjective grade. For example, “This Vendor is Flexible in Requests to Alter Production” is a difficult metric to track in our ERP system. Instead, at the end of each quarter, our supply chain team fills out a survey for each vendor that rates them on several dimensions such as flexibility. Rating vendors on a scale is the best way to get a good score from a soft metric. Even better is when the survey has an example for a top, middle, and bottom score for the metric so that scoring is more consistent across teammates. Recording everything in a free Google Form that you send out to your team is even better.

Google Doc Questionnaire 2

Weight What Matters

Once you have the metrics you want to measure (I have 4-6 in each category), it’s time to weight them. Start by rating the overall categories. The pricing category may be 25% of the total score, quality 40%. When your categories equal 100%, weight the individual components of each category. For example, if the quality category is weighted at 20% and has three metrics, then those three metrics could be 5%, 12%, and 3%, which adds up to 20%. The Vendor Scorecard Template shows my weighting.

Example Weighting

Pull Out the Gradebook

Maybe it’s from the report cards I received every semester in public school, but the A through F scale carries a lot of significance to me. That’s why I like to use that scale for each of my metrics. Some can only receive an A or F, or A, C, or F, but they all have the same percentage score. Based on their grade, vendors receive a percentage of that metrics weight as follows:

  • A – 100% A metric with 10% of the total scorecard weight would be 10% with an A
  • B – 75% (7.5% with the same metric)
  • C – 50% (5%)
  • D – 25% (2.5%)
  • F – 0%

Color-coding the scale adds the final touch of understanding so that it translates well and conveys the message clearly.

Example Weighting

Build the Document

Finally, once you’ve figured out your categories, metrics, and weighting, put it all together in a spreadsheet scorecard. You can use my template as a starting point to build your own.

3. Roll Out the Program

Once your scorecard is complete, implementation is your next bull to lasso. You’ll need to devise a plan to clearly communicate what, why, and how you are measuring your vendors. Depending on your suppliers, your experience could be much different, but here’s what I did.Why a Vendor Scroecard?

First, I put together a presentation with one or more slides explaining the following. It was detailed and thorough so that our vendors could clearly understand each score. Specifically, the document had the following:

  • A detailed explanation of each category and metric
    • For complex calculations, I included an example slide
    • Explanation of weights were also included
  • Reasons why we were beginning the vendor scorecard program
  • The implementation schedule (trial and full launch)
  • Our commitment to our vendors

Armed with a document that clearly defined the program, our CEO emailed the presentation and the scorecard spreadsheet to the leadership of our key suppliers. He asked them to review it and then meet with us in a video conference discussing the program. During the meetings with our six key suppliers, the CEO expressed support of the program and our supply chain team explained the details. Most vendors appreciate being measured on more than just price, and so all of our vendors were excited about the program as a chance to prove their holistic value to our company.

We designated the first month as a trial period where we would track performance, iron out issues, and report scores but not take action based on their results. After meeting at the end of the first month to discuss the trial run, we began the program in earnest.

4. Review and Reward

What will make your vendor scorecard program truly succeed is your diligence after implementation. I strive to send out scorecards on-time at the end of every quarter. My team schedules meetings via Skype or in person to review the scorecard each quarter and discuss ways to improve. The communication is two-way – we want all our vendors to reach perfect scores. That is why we council openly about what each of us can change to improve the metrics.

Another big decision to make is what you’ll do because of the scores. Will vendors with consistently high scores obtain a preferred status? Will quality checks or audits happen less frequently? Will you distance yourself from vendors who are very cheap, but fail in every other category? Will you reward contracts based on scores?

If you find yourself rewarding higher scores with more business, then your weighting is probably correct. However, if more and more business is still going to vendors with lower scores, then consider revising your scorecard to better reflect your company’s true priorities.

A great and relatively inexpensive way to encourage scorecard improvement is a vendor of the year program. This could involve a personal meeting, dinner with the CEO, and a plaque for the winning company. When I watch the “Walmart Vendor of the Year” award go to one of my competitors, I find new motivation to improve. Your suppliers may feel the same.

Bonus Step – Survey Your Vendors for Improvement Tips

If your vendor scorecard program is chugging along, then consider asking your vendors to score you. Sending a quarterly feedback survey to your vendors to discuss at the same time as their scorecard can bring insights into how you can be a better customer. Some questions could be:

  • What good practices do your other customers do that you wish we did?
  • What can we do to help you reduce lead-time?
  • What was an example of a project that went well? What about that experience can we recreate for all future projects?

If you make it clear they won’t be penalized for honesty, then you may be lucky enough to get great feedback on how to truly improve. Becoming a better customer can help your vendors better service you. In addition, you may pick up some best practices from their other customers or resolve root causes of your own deep problems. Address these issues in the scorecard review meetings and make commitments to improve when possible. We received a lot best practice tips from our vendors when we said, “we’re really bad at forecasting, so we’ve brought on staff with forecasting experience and invested in the software we needed.” They detailed how their other customers forecast and recommended we try the same.

Final Thoughts

As I talked about in my article on supply chain gamification, games have a way of bringing out our passion and motivation. A vendor scorecard brings the power of game mentality to supplier relations. “Just keep everything green and keep out reds” becomes the goal of your vendors. “Work with the highest scoring vendors” becomes your vendor selection shortcut. Measuring progress brings improvement that both your vendor and you will enjoy.

From the success I’ve seen from the program, I wish I had started it years ago. This quickly brought to mind the mantra of a friend of mine in process improvement. “There’s two good times to plant a tree: twenty years ago and now.”

If you haven’t started a program yet, begin today. If you have one already, take a look at how you can improve. Either way, share your experience in a comment below.

Update – Learn More about Vendor Scorecards in our Podcast

In our podcast interview with Mark Kosiba (former VP of Operations at Skullcandy), Mark talks about vendor scorecards and their effect on his company. The above model was based on his help, so it definitely applies to anyone wanting to implement a vendor scorecard program similar to the above.

Check out the podcast to learn more: How Skullcandy Rocked S&OP (and Vendor Scorecards)